Stocks stabilized on Tuesday, after some early selling. It wasn't exactly a capitulation but there was a lot of damage done to the small caps and the Nasdaq over the prior two days, and a relief rally was expected. The Dow gained just 10-points, but the hard hit indices did rebound nicely.
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Small caps led the way yesterday but they are still smarting from the recent pounding they took. The I-fund was basically flat despite a sharp gap down in the dollar. Barring any major sell-off in U.S. stocks, the I-fund should do well today. Bonds were up modestly.
Earnings season kicked off with earnings from the normally boring Alcoa. They beat estimates and rallied 6% after hours, but this usually isn't much of a market mover. Pre-earnings expectations have been quite negative so perhaps this beat is a good omen for the coming first quarter earnings reports.
Whether the next step is a "V" bottom or a bout of "sell-the-rally" remains to be seen. But over the last few years, being in stocks after a pullback like this has paid off. One day it won't, but betting against it in recent history has not been a winning strategy.
The SPY (S&P 500 / C-fund) briefly fell below the 50-day EMA and neckline support line (red) yesterday before reversing and closing well above them. The 20-day EMA is next as possible resistance should the relief rally continue, and then the bottom of the rising wedge formation (blue). Volume wasn't that high so the big money managers probably were doing a lot of the buying, but it was actually slightly higher than the action prior to the jobs report last week.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Nasdaq 100 (QQQ) was in freefall for a couple of days so the bulls were happy to see some relief yesterday as it posted 0.9% gain. Those large tech stocks that were hit so hard, did attract some buyers. Again the question is, do we have another "V" bottom on our hands like we have seen many times over the last year or so, or will this be a "dead cat bounce" that will be sold?
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Transportation Index posted a positive reversal day yesterday after breaking through the 50-day EMA in early trading. These reversal days have proven to be bullish on the Transports, and occurring at the 50-day EMA is a plus.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The dollar opened sharply lower yesterday creating another big gap on the UUP chart. While this looks bearish, the gaps are likely to be filled so we may see some choppy action over the short-term. This choppy action may roll into the I-fund and with all the open gaps overhead, it might be a short-term concern for the I-fund, but as mentioned above, today the I-fund may get a boost from yesterday's action in the dollar and U.S. stocks.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Here are the bond charts. Not much new here except the TLT is attempting to break to the upside again.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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